RPM Reports Fiscal 2013 Third-Quarter Results - Third-quarter net sales increase 9% over prior year

- Net income increases 31% and diluted EPS increases 40%, on an as-adjusted basis

- Adjustments include accrual for prospective GSA settlement in roofing division

MEDINA, Ohio, April 4, 2013 /PRNewswire/ -- RPM International Inc. (NYSE: RPM) today reported financial results for its fiscal 2013 third quarter ended February 28, 2013, which reflected strong operating performance, offset by two non-operating adjustments and certain other charges recorded during the quarter in the company's industrial segment.

"RPM achieved solid operating results in the quarter," stated Frank C. Sullivan, chairman and chief executive officer. "Net sales, net income and diluted earnings per share (EPS) all increased significantly, on an as-adjusted basis, driven by strong performance in all of our consumer segment businesses and in many industrial segment businesses. Together with accretive acquisitions, this performance helped offset weaknesses in our European operations and North American roofing business. The improvement was all the more noteworthy given the difficult comparisons to last year's strong third quarter during which RPM's sales and earnings grew to record levels as a result of the exceptionally mild weather throughout most of North America."

Third-Quarter Results

On an as-reported basis, net sales grew 9.1% to $843.7 million from $773.6 million. Consolidated earnings before interest and taxes (EBIT) were a negative $48.6 million, compared to EBIT of $27.1 million a year ago, due primarily to an adjustment for a $68.8 million accrual associated with an investigation of the company's Building Solutions Group roofing contracts with the U.S. General Services Administration (GSA). The substantial majority of the accrual relates to the sale of products and services from 2002 to 2008. The as-reported net loss for the quarter was $42.4 million, compared to net income of $6.6 million in the year-ago period. The diluted loss per share was $0.33, compared to diluted earnings per share of $0.05 in the fiscal 2012 third quarter. 

RPM's Building Solutions Group is in ongoing settlement discussions with the U.S. Department of Justice (DOJ) and the GSA aimed at resolving the investigation. The company is cooperating with the investigation, which involves compliance with certain pricing terms and conditions of GSA contracts under which RPM's Building Solutions Group roofing division sold products and services to the federal government. The actual amount of the company's loss, which remains subject to approval by the DOJ, may vary from the amount of the accrual.

The second non-operating adjustment for the quarter is associated with the company's decision to close an existing flooring business in Brazil in light of the Viapol acquisition there earlier this fiscal year. The impact of this decision resulted in a $6.1 million cumulative translation adjustment (CTA) write-off, which also triggered a $7.7 million tax benefit that impacted the current quarter as well. The net impact of this strategic repositioning of RPM's existing flooring business in Brazil was an increase to net income of $1.6 million or $0.01 per share.

"We are extremely excited about the establishment of a significant platform for RPM in Brazil with the Viapol acquisition, where we can leverage its substantial sales force, manufacturing facilities, broad distribution network and entrepreneurial management team to expand RPM's epoxy and polyurethane flooring presence," stated Sullivan.

On an as-adjusted basis, EBIT declined 3.1%, to $26.3 million from $27.1 million a year ago. The decrease in EBIT was primarily due to a $6.4 million unfavorable swing in foreign exchange losses on working capital balances at quarter end, principally related to the devaluation of the British Pound versus the Euro, and $4.1 million in non-operating expense changes, principally related to severance in Europe. Net income increased 30.8% to $8.7 million, compared to $6.6 million in the year-ago period. Diluted earnings per share were $0.07, up 40.0% from $0.05 in the fiscal 2012 third quarter.

Third-Quarter Segment Sales and Earnings

On an as-reported basis, industrial segment sales grew 6.1% to $532.3 million from $501.9 million in the fiscal 2012 third quarter. Organic sales improved 1.6%, including foreign exchange translation gains of 1.2%, while acquisitions added 4.5%. Industrial segment EBIT fell to a negative $66.3 million, including the impact of both adjustments referred to above. 

On an as-adjusted basis, industrial segment EBIT was $8.7 million, a decrease of $12.6 million from the prior year. This was principally due to the previously mentioned unfavorable swing in foreign exchange losses, which impacted this segment by $7.5 million, combined with $4.1 million in non-operating expense changes in Europe, as those businesses take appropriate actions to adjust to the difficult economic conditions continuing throughout the Eurozone.

"With the exception of our roofing division, most of our North American industrial businesses benefited from the gradual economic recovery in the U.S., especially our businesses serving commercial construction markets," Sullivan stated. 

RPM's consumer segment had a 14.6% increase in net sales to $311.4 million from
$271.7 million in the fiscal 2012 third quarter. Organic sales improved 2.5%, including foreign exchange translation gains of 0.3%, while acquisitions added 12.1%. Consumer segment EBIT increased 61.6% to $34.7 million from $21.5 million a year ago.

"Our consumer segment continued to benefit from the introduction of new products, market share gains and increased consumer spending as the housing market continues its gradual recovery. We are particularly encouraged by the traction being gained by new products that are well beyond our traditional consumer price points and by increases in market share across virtually all consumer product lines. The recent acquisitions of HiChem in southern hemisphere Australia and Kirker, specializing in nail polish enamels, added to the strong consumer segment results as their business dynamics provide a counter to the historic seasonal low of most of RPM's core consumer businesses," stated Sullivan. 

Cash Flow and Financial Position

For the first nine months of fiscal 2013, cash from operations was $170.9 million, compared to $153.5 million in the first nine months of fiscal 2012. Capital expenditures during the current nine-month period of $45.7 million compare to depreciation of $41.9 million over the same time. Total debt at the end of the first nine months was $1.4 billion, up from $1.1 billion a year ago and at the end of fiscal 2012, due mainly to increased acquisitions. RPM's net (of cash) debt-to-total capitalization ratio was 49.8%, compared to 40.3% at May 31, 2012, primarily due to additional borrowings to fund acquisitions.

"At February 28, 2013, our total liquidity, including cash and long-term committed available credit, stood at $912 million," Sullivan stated. "As a result, we have plenty of resources to continue our robust acquisition program, which has added companies with annual sales totaling more than $225 million during the current fiscal year," stated Sullivan.

Nine-Month Results

On an as-reported basis, nine-month net sales grew 8.7% to $2.91 billion from $2.68 billion. Consolidated EBIT was $124.4 million, compared to EBIT of $256.7 million a year ago. As-reported net income for the nine-month period was $33.2 million, compared to net income of $133.4 million in the year-ago period. Diluted earnings per share were $0.25, compared to diluted earnings per share of $1.02 in the fiscal 2012 nine-month period. 

Adjustments affected nine-month results in both years. In fiscal 2013, the company incurred charges of $79.8 million in its Building Solutions Group roofing division, of which $68.8 million related to the current quarter GSA accrual and $11.0 million related to a first-quarter charge for the strategic decision to exit certain unprofitable contracts outside of North America. A $6.1 million pre-tax loss was also recorded during the current quarter when the company completed a repositioning of its flooring business in Brazil, which was more than offset by a tax benefit reflected in income tax expense.  In addition, the company recognized, during the first half of this fiscal year, a $56.1 million write-down of its equity investment in Kemrock Industries and Exports Ltd., due to continued deteriorating economic conditions in India, where Kemrock is based, and the resulting adverse impact on Kemrock's operating performance and stock price.

The fiscal 2012 year-to-date adjustment was for income recognized in RPM's industrial segment, which occurred when RPM's ownership position in Kemrock exceeded 20%, thereby triggering a reportable equity ownership position and resulted in a benefit of $5.2 million, including a $4.6 million cumulative income catch-up. 

On an as-adjusted basis, nine-month consolidated EBIT increased to $266.5 million from $251.5 million a year ago. Net income increased 13.9% to $146.0 million from net income of $128.2 million in the year-ago period. Diluted earnings per share were $1.10, compared to diluted earnings per share of $0.98 in the fiscal 2012 nine-month period. 

Nine-Month Segment Sales and Earnings

On an as-reported basis, sales for RPM's industrial segment increased 6.4%, to $1.93 billion from $1.81 billion in the fiscal 2012 first nine months. Organic sales were flat, including foreign exchange translation losses of 1.7%, while acquisitions added 6.5%. Industrial segment EBIT fell to $88.8 million from $192.0 million in the first nine months of fiscal 2012. On an as-adjusted basis, nine-month industrial segment EBIT declined 1.3% to $184.4 million from $186.8 million in the prior year.

In the consumer segment, nine-month sales increased 13.4% to $981.1 million from $865.2 million reported in the first nine months of fiscal 2012. Organic sales improved 4.9%, including foreign exchange translation losses of 0.5%, while acquisitions added 8.5%. Consumer segment EBIT improved 32.4%, to $132.1 million from $99.7 million in the first nine months a year ago. The consumer segment was unaffected by one-time adjustments.

Business Outlook

"For the full year, we now expect consumer segment sales to exceed the higher end of our targeted 8% to 10% range, while industrial segment sales will most likely fall short of the lower end of our previous 6% to 10% range.  Our guidance calls for consolidated net sales growth of 8% to 10% and net income growth of 9% to 12%, resulting in diluted earnings per share in a range of $1.80 to $1.85, on an as-adjusted basis.  Although we exceeded last year's third quarter results, we fell short of our internal plan by $0.03 per share as a result of the European expenses for foreign exchange and severance.  While we are hopeful of hitting our full year goals, this third quarter shortfall and continuing weakness in Europe and roofing will make this challenging," Sullivan stated.

Webcast and Conference Call Information

Management will host a conference call to further discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 866-700-6067 or 617-213-8834 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from approximately noon EDT on April 4, 2013 until 11:59 p.m. EDT on April 11, 2013. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 90961771. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.rpminc.com.  

About RPM

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. Industrial brands include Stonhard, Tremco, illbruck, Carboline, Flowcrete, Universal Sealants and Euco. RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors. Additional details can be found at www.RPMinc.com and by following RPM on Twitter at www.twitter.com/RPMintl.

For more information, contact Barry M. Slifstein, vice president – investor relations and planning, at 330-273-5090 or bslifstein@rpminc.com.

This press release contains "forward-looking statements" relating to our business.  These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond our control.  As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements.  These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents and other natural gas- and oil-based materials; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) risks related to the adequacy of our contingent liability reserves; (j) risks and uncertainties associated with the SPHC bankruptcy proceedings; and (k) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2012, as the same may be updated from time to time.  We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.